June 2025 DDD

• Silver surged +5.8% today, marking its best day in over a year. It’s only Monday, but futures are on pace for their highest weekly close since 2012.
• Sam notes that Silver is testing key resistance at $35/oz, which aligns with the 61.8% Fibonacci retracement of the decline from 2011 to 2020. Silver has failed here several times—twice in 2012, and more recently in October and March.
• A decisive breakout above $35/oz could send Silver to all-time highs near $49/oz. Returning to all-time highs would complete a 14-year baseand unlock significantly more upside.

The Takeaway: Following its best day in over a year, Silver is testing a potential inflection point at $35. A successful breakout would set the stage for all-time highs and complete a 14-year base.

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Three numbers are sending a spasm of concern through Wall Street: 899. That’s the clause of the One Big Beautiful Bill Act currently before the Senate that gives the Treasury secretary the power to levy retaliatory taxeson the US investments of foreign countries that have levied “unfair taxes” on US companies. This isn’t a legal column, but you might try useful explainers from Baker McKenzie, or Skadden Arps, or McDermott Will & Emery.

The upshot is that the Treasury must tell Congress each quarter which countries apply “extraterritorial and discriminatory” taxes (the EU’s digital services tax is a prime example), and can then levy a 5% tax surcharge on their investments in the US, which could rise in stages to 20%. This matters because:

• Capital flows can be stopped far more easily than trade in goods;
• It gives the US a new weapon for negotiations (or to shoot itself in the foot);
• Once passed by Congress, it has stronger legal grounding than tariffs;
• It’s really likely to happen; and
• Future Democratic administrations might well leave it in place.

Financially, the chief effects would be to weaken the dollar, a key administration aim, and to help foreign markets outperform the US. That’s because the tax would make US holdings more expensive, while the way the bill is structured would permanently add a new risk, as the unfair taxers list would be revised every three months. If American stocks and bonds are made riskier and more expensive, it behooves foreign investors to take money home.

Stephen Miran, chairman of the Council of Economic Advisers, argued in his widely read User’s Guide to Restructuring the Global Trading Systemthat: “Demand for reserve assets leads to significant currency overvaluation with real economic consequences.” Reducing demand for those assets should thus weaken the dollar.

So far, the administration is getting what it wants. Bloomberg’s dollar index, comparing against both developed and emerging currencies, is at a two-year low:

Meanwhile, US equities have begun to lag the rest of the world after a protracted period of leadership (known as the American Exceptionalism trade):

The strength of the dollar and US equities is of course related. Over the last 30 years, they have moved almost exactly in line with each other, with the dollar (on a real or nominal basis) gaining as US stocks outdid everyone else. If this trend unwinds, there’s a long way to go:

This has left a spectacularly negative US net international investment position (US investments overseas minus foreign investments in the US), of some $26 trillion. This began in earnest after the Global Financial Crisis and went into overdrive during the American Exceptionalism trade since Covid. Much money could be taxed — or repatriated:

The problem with this is that foreign demand for US assets reduces American yields, making it cheaper for Uncle Sam to finance its deficit, and for companies to raise equity capital. Miran described estimates that the dollar’s reserve status saved Americans between 50 and 60 basis points in interest costs as “fictional.” That could be put to the test soon.

If it seems strange to discourage others from investing in the US, Lew Lukens of Signum Global Advisors says: “The president’s viewpoint is that there is such immense foreign appetite to invest in the US that it is not at risk of being thrown off course.” That’s contestable: Emerging markets will offer a chance to check the hypothesis.

Among the biggest and unlikeliest winners from the decline of American exceptionalism have been emerging-market currencies. The Trump Always Chickens Out (TACO) trade — a belief that tariffs won’t happen — has given them a tailwind to counteract the trade uncertainty. JPMorgan’s index of EM currencies is at its highest since October:

The steepening of the US yield curve as fiscal concerns mount has also helped EM currencies. These charts by Barclays’ Marek Raczko explain the dollar’s problems:

In the first chart, Raczko shows that curve steepening is correlated with a weak dollar, because the market expects more accommodative Federal Reserve policy. But the second chart illustrates that the recent steepening is instead driven by a rise in the US term premium (the extra return that investors demand to take the risk of lending to the government over longer periods). Normally, that would send money to the dollar as a haven, but not this time:

The sign of USD correlation with the US term premia has flipped, meaning that the higher term premia is now associated with a weaker dollar. This suggests that the market is challenging the US’s safe-haven status and trading the dollar in line with US policy concerns.

Inflows to emerging markets also help. Macquarie’s Viktor Shvets shows that EM excluding China last month recorded the largest net inflow since December 2023. Greatest beneficiaries included India ($2.3 billion), Taiwan ($7.6 billion), and Brazil ($2 billion). That reversed a string of net outflows:

TACO is also fueling a surge back into the carry trade – where investors borrow in a low-yielding currency and invest where rates are higher (usually in EM). Carry trades generally require low volatility, so this is vulnerable to any sign that President Donald Trump won’t chicken out (which would amp up volatility). A JPMorgan Chase & Co. measure of global currency volatility dropped to 8.9% on Monday from as high as 11% in early April, helping Bloomberg’s EM carry trade to a seven-year high:

Currency volatility remains elevated compared to its lows before the spectacular unwind of the yen carry trade last July. Societe Generale SA’s Phoenix Kalen argues that “positive global growth considerations” are outweighing high volatility, which bolsters EM FX. It is hard to know how long this attractiveness will last.

In Latin America, which offers some of the highest real yields globally, prospects hinge on upcoming elections. Brandywine Global’s Michael Arno adds that major polls in Chile, Peru, Colombia, and Brazil this year and next could pivot the region from the current left-leaning administrations to more centrist, pro-market leadership. That would reinforce investor confidence and attract more capital. For now, Brandywine shows that Latam’s yields are hard to resist:

In Central and Eastern Europe, Arno believes that Hungary, Poland, and Czechia are well placed to benefit as fiscal stimulus and targeted industrial policy gain traction in the euro zone. Ultimately, EMs benefit most from the decline of US exceptionalism, giving central banks room to cut rates, as noted by Points of Return, and letting fiscal authorities spend without worrying about tanking the currency.

In a world where no one is exceptional, as Macquarie’s Shvets puts it, EMs are no longer penalized. At best, he calls the fall of American exceptionalism a process, not a collapse — creating conditions for a gradual rise in US risk premia while avoiding disorderly asset repricing:

Investors will continue narrowing spreads between US and non-US assets, supporting EMU and Japan. Ditto for EMs, especially those with stronger secular drivers, with India, Korea, and Taiwan standouts.

US fundamentals remain robust so a stronger dollar in the medium term cannot be ruled out — though section 899 taxes might threaten a more disorderly retreat. The dollar is merely down, not out, but emerging markets welcome the break.

jog on
duc